Monday, October 1, 2018

The last day of the quarter (Tesla edition)

Hedge fund managers who actively trade to produce profit specifically on the last day of the quarter should be treated with scorn. They are marking their book and that is bullshit.

It doesn't mean that it doesn't happen. Just treat it with the contempt it deserves.

Companies that do things to produce results on the last day of the quarter should be treated with similar scorn. Channel stuffing, shifting expenses into the next quarter and other forms of abuse lay there.

I am completely staggered by an SEC filing by Tesla today detailing an email by Elon Musk to staff. I will quote in full:

EX-99.1 2 tsla-ex991_6.htm EX-99.1
Exhibit 99.1 
The following e-mail was sent by Elon Musk to all employees of Tesla, Inc. on September 30, 2018.

We are very close to achieving profitability and proving the naysayers wrong, but, to be certain, we must execute really well tomorrow (Sunday).

If we go all out tomorrow, we will achieve an epic victory beyond all expectations.

Go Tesla!!!

Thanks for all your hard work,
Elon

If this were a drug company I would call fraud. Channel stuffing is just too easy.

But this is a car company and channel stuffing doesn't work so well.

I am wondering (comments please) on just what Tesla could possibly be doing on a Sunday, the last day of the month, to produce the result Elon desires?




John

and hat-tip to Jaguar Analytics for pointing out the filing...

24 comments:

Anonymous said...

There is nothing they can do on the last day to help the quarter. It's all just a narrative. Elon will set the stage for a victorious quarter by doing 'x' amount of deliveries in a day which extrapolates to a staggering quarterly number. His flock doesn't know any better, and running a business this way without enough capital will ultimately just shorten the company's life.

Anonymous said...

Could it not be the case that with the SEC settlement behind him, he's just trying to motivate his people? It would be exhausting working somewhere that is constantly being roasted by outspoken critics. What's wrong with an internal high five?







Or it's stuffing

Lyall Taylor said...

If it's a production target that's different from a sales target. Channel stuffing is around sales. People are monitoring Telsa's ability to ramp M3 production as much as they are sales.

Not saying I disagree TSLA is a sell.

Anonymous said...

We've seen this all before:

Stretch payables, ZEV credits, he fired a bunch of people so they'll call the severance "one time" and exclude it from adjusted bullshit numbers.

He also changes his definition of profitability: it can mean net income, it can mean adjusted net income, it can mean cash from operations, and it can mean free cash flow. Of course, only one of those actually matters, but the Teslalemmings don't know that.

Bob Schriver said...

His fatal flaw (if it proves fatal - Spacex is worth more than most of us will ever contemplate) is an unconstrained sense of urgency - If he'd taken down $10 B instead of $5 B last round and just played out his hand quietly he might be OK now. Known a few of those guys - might be better off myself if I were one of them.

Anonymous said...


Not sure if any accounting software would allow it.
- Make a customer pay for a car. Receive 50k USD - the 3k deposit / configuration in cash
- Inform the customer there is a logistical error. Delivery hell. Car will be available next week.
- Not book any deferred revenue liability.

Hence they'd own the cash and inventory.

Anonymous said...

Sounds like pulling all the stops to get cars to Factory-Gate status (even if they subsequently need returning for customisation/rectification)
This allows them to hit the only number anyone is looking at for Tesla which is Quarterly/monthly production numbers without any need for channel stuffing.

Final sales is a very vague number with direct sale car companies like this anyway since confirmed deposits on are generally recorded as final sales in the numbers (though revenue is deferred until it comes in it allows you to meet the top-line number)

Delorean had a good line in playing with the 'sales' number when needed 40 years ago and I doubt much has changed

Anonymous said...

To take away attention from missing their production target (6K a week) and from likely missing their positive earnings goal they are going to pump a new metric of deliveries in 1 day, or deliveries in 1 week and extrapolate it out to a year.

Meanwhile, production and new orders for the model 3 are running around 3k a week which would mean that next quarter they will have a sequential revenue decline putting a stake in the demand thesis.

https://twitter.com/TroyTeslike/status/1046608438015537152

Troy who has a good track record has the Tesla demand figures.

obelix said...

As a manager, I see nothing wrong with setting an arbitrary goal and then rallying the troops to meet that arbitrary goal. Human beings want to accomplish things together and feel that they are part of something bigger and have purpose.

Anonymous said...

I guess it depends on revenue recognition? They take a deposit, then a configuration deposit and the customer then pays the full amount and awaits delivery. It would appear they held back deliveries as that is what drives the tax credit threshold and now they are trying to deliveries out to customers. The production rates have dropped by all accounts and it seems the quarter end rush this time is to get cash in the door to support cash flow. There is discussion that they are taking credit card payments from customer to allow such. Is it legal/normal to have such discussion numbers internally within a PLC. Any company I worked for that would not have been allowed?

Anonymous said...

They can deliver cars to customers.
Apparently, delivery rather than assembly is now the limiting step for profitability.

I'd hate this a lot more if there wasn't so much absolutely garbage press on both sides, which focuses solely on quarterly numbers. Also the share pricing is absurd, and I'd really hate it if I worked there. The financial key should be looking at the growth rate in their demand, capacity, production, delivery, and ultimately cash flow.

Unknown said...

This is nothing more than a morale booster. You've got a whole lot of employees working hard on a Sunday, based on all the news they're not even sure if their employer is going to exist much longer. What email should Elon send as CEO?

Kien said...

I assume CEO Musk is just being a coach. I once worked for a CEO, who was well on track in exceeding targets, but he would warns us at management meetings that we are close and not to fall over as we approach the end of the financial year.

Anonymous said...

A good old fashoined stock pump to make those convertabiles worthe exercising.

Lloyd Simmons said...

Total guess: maybe pushing through agreements with leasing partners?

Market Watch reported in May that changes to the accounting standard mean 'Sales with a resale value guarantee and cars leased through its leasing partners... now generally qualify to be accounted for as sales with a right of return, rather than operating leases.'

(source: https://www.marketwatch.com/story/tesla-adjusts-numbers-for-impact-of-new-revenue-rules-that-also-helped-it-beat-estimates-2018-05-07).

Unknown said...

Technically it's not channel stuffing. They already have deposits down for these cars (and all the production cars until 2020). If however, 'profitability' comes down to one day of grunt production and delivery in the quarter, it's not a pretty picture. What will be interesting is the next 3 quarters. Tesla has been delaying the production of the 'base' version of its model 3 which they pegged at US$35K, about $6K below the per unit production cost according to some industry analysts. They will never sell the car at that price in the next 3 years. They'll have to revise it up and it will cause an even bigger exodus of deposit holders than when musk called that cave diver a 'pedo' (which was a very interesting phenomenon). He should never have made this car about the price, it's a race to the bottom and marketing mistake 101.

HS said...

The cars have a contribution margin (before fixed costs). They recognize revenue upon delivery. If customers don’t get their cars, the can’t recognize the margin. So they need their sales people to get customer acceptance. That’s about the only thing that could be happening on a Sunday. Oh and maybe the sales people are punching in “delivered” on their terminals, when that hasn’t really happened...working hard on a Sunday. I can’t remember the last time aggressive incentives led to less than stellar behavior...now let me go figure out why I needed all these Wells Fargo accounts!

Anonymous said...

Supplier issues are next inc, utility.

Anonymous said...

My model 3 was delivered to my house on a Sunday (the week before the last Sunday of the quarter) by a Tesla product manager. So although I totally agree that one day's effort isn't going to make much difference to a quarter, it is definitely the case that Tesla people are being asked to do (legitimate) stuff that most companies don't ask, and that sustained over weeks and months, it probably will make a difference to the numbers.

Anonymous said...

Mark Spiegel’s presentation back in 2016 told you all you need to know about this company.

CrocodileChuck said...

https://www.nytimes.com/2018/10/01/business/tesla-cars-questions.html?action=click&module=Trending&pgtype=Article&region=Footer&contentCollection=Trending

Anonymous said...

John,

TSLA always tried to maximise deliveries and thus revenues in a quarter. For example, they ship cars destined for customers overseas in the first month of the quarter to ensure they get delivered in the quarter. In later months, they then ship cars for US customers.

This emphasis on short term numbers is therefore not a new development. What is a new development however is that they apparently are close to profitability (whether that is sustainable is another question).

But, with the SEC suit already resolved, and a good quarter announcement seemingly on the way, it does not appear to be a good time to be short.

Anonymous said...

It's probably pushing to get purchase documentation completed on vehicle sales so they can be counted as revenue in the Q. BTW, he does this pretty much every Q. If you were a shareholder (long), wouldn't you want your CEO to do everything humanly possible to complete sales as quickly as practicable? Most CEOs can't be bothered with this type of (legitimate) sales push - they are too lazy (and if they try to window dress, will instead to resort to channel stuffing, etc., just as you point out).

Eugene said...

Hard to see how this could change the big picture; be it one day or one quarter, except reaching this milestone could be a big boost to morale. The writing is on the wall; my X and S are the most amazing cars I’ve ever had and other owners I know think the same. Apparently, a bunch of existing owners were happy to work for free this weekend to help deliver cars to new owners. Were they also part of channel stuffing conspiracy? Probably not, just want to see Tesla to succeed, just like Musk. Would you want to bet against that? Or he could be a master
manipulator who tricked us all.

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